While Uganda has made significant efforts in reducing the proportion of individuals and households living below the absolute poverty line, nearly 10 percent of the households continue to live in persistent or chronic poverty with significant differences across geographical areas. Of all households classified aspoor in 2009/10, nearly 49 percent were chronically poor households and as such the poor are not a homogenous group. Compared to 1992-99 period, households in Uganda were found to be more vulnerable to poverty in the period 2005/6-2009/10. These observed changes in the nature and patterns of poverty dynamics in Uganda require government to move away from universal poverty reduction interventions that continue to treat the poor as a homogenous group. Otherwise, Uganda’s achievement of the first millennium development goal of halving extreme income poverty earlier than 2015 might not be sustainable.The paper also examines the drivers of income inequality and finds that education remains the key determinant of income inequality. At the same time, income differences between regions are narrowing suggesting an indication of regional convergence on average income. While government’s fiscal targeting of the lagging areas and rural areas might explain the observed convergence in average income across geographical areas, there are other emerging development challenges that require further refinement for the current targeting. Access to public extension programs such as the National Agricultural Advisory Services (NAADS), which are intended to enhance agricultural production and productivity is skewed to well-to-do households and not evenly distributed across region. Similar observations are noted in terms of access to community infrastructure. There is also need to ensure that the benefit of economic growth reach the poorest in a way that expands their opportunities.